Market In High-Level Consolidation

The first week of October morphed into an inside week within an inside month context, with the prior all-time high at 2947 repelling the advance and the Emini S&P 500 (ES) only reaching 2944.75. If you recall, heading into the week, the bull train was looking for an acceleration to continue its upside pattern towards 2960-2970, which means the bulls ultimately failed their immediate breakout thesis with the lack of a 2947 breakout. This opened up the opportunity for the opposing bears to launch the counter attack for the grind towards the downside range.

The main takeaway from this week is that the market is now in a high level consolidation mode hovering against major support on the higher timeframes. This means that the prior month’s low at 2865 is now the must hold support in terms of this backtest to the downside range to complete the rectangle range. Otherwise, if price action fails to hold here then it likely morphs from high level consolidation/inside month into a breakdown month towards 2820/2803 next major support levels.

What’s Next?

Friday closed at 2895, and it was a temporary higher lows sticksave at 2873.25 (prior month’s low 2865), which overshot one of the key weekly levels of 2883.50. Heading into the second week of October, the overall monthly range from September is 2947-2865, and we’re maintaining our thesis of the inside month context per our trading plans. Currently, we’re treating the 2873.25 low as the temporary bottom, and we’ve updated the 4-hour white line projection chart on how the route should partake back towards 2907.5 prior breakdown level and then the continuation towards the 2940s range high.

As noted earlier, if price action does not co-operate and mimic our thesis/projection and breaks below the 2865 must hold support, then the inside month context would be invalidated and the action morphs into a legitimate breakdown where there are no major supports until 2820/2803 for a larger range expansion backtest.